EMU 1999 - Do we need a delay or institutional reforms?

Abstract

During spring 1997 it has become clear that many of the countries who wish to join the EMU from the beginning of 1999 are going to face problems considering the convergence criteria of the Maastricht treaty. In many cases this is because the necessary actions to stabilise the economies have been taking too late. It has therefore been argued that the EMU should be delayed, at least for some of the potential participants. This article focuses on the question of how to reduce the public sector debt, and introduces an analytical model that shows that additional time for stabilisation as such has no effects on a country's incentives to stabilise earlier. The second part of the article studies the role of institutions in providing such incentives. It turns out, that by institutional arrangements, such as increasing political stability, making the central bank more independent or calling a referendum about the EMU membership, it is possible to achieve earlier stabilisation.